With the updated revenue recognition standards, recognition for software and technology is expected to continue to present challenges for FS preparers. Ways of doing business continue to evolve as do the views of the standard setters and regulators. It is imperative that any company required to apply the software revenue recognition standards be thoroughly knowledgeable of the guidance.
In May 2014, FASB and IASB issued largely converged revenue recognition standards. This new guidance replaces virtually all current revenue recognition guidance, including software revenue recognition guidance in ASC 985-605. The accounting change will be especially notable for software/technology companies and may require modification to systems, processes, controls and documentation to meet the new requirements.
Most companies in the software industry will be significantly affected. The level of modification to current revenue recognition practices will depend on the nature of the company’s revenues.
Those companies with software license revenue will be most affected. There will be a lesser impact on the recognition of software-as-a-service (SaaS) revenue.
Software companies’ arrangements with customers often include multiple components wrapped into one contract. These could include Software licenses, Software-as-Services (SaaS), Post-contract customer support (PCS), and other goods or services. The new guidance will change how software entities are recognizing revenue for these contracts in a few notable ways.
ASC 606 provides a more defined structure for assessing all revenue transactions and consists of five elements:
• Identify the contract with a customer
• Identify the performance obligations (promises) in the contract
• Determine the transaction price
• Allocate the transaction price to the performance obligations
• Recognize the revenue when (or as) the reporting organization satisfies the performance obligations
The new guidance will change how software entities are recognizing revenue for these contracts in a few notable ways. This course is designed to provide insight related to the new revenue recognition standard as it applies to software and technology processes.
Publication Date: March 2019
Topics Covered
- Insight related to the new revenue recognition standard as it applies to software and technology processes
- Overview of changes to RR for software and technology companies
- Five Step Revenue Recognition
- Basic Principles of RR
- Performance Obligations
- Determine Transaction Price
- Recognize Revenue
- Other Uses
- Basic Principles of Revenue Recognition
- Non”software Deliverables in an Arrangement Containing More”than”Incidental Software
- Factor One — More Than Incidental
- Factor Two — Customer Support
- Factor Three — Significant Costs
- Vendor Hosted Licensed Software
- Up Front Fee
- Future Discounts
- Software Components Excluded from Scope of ASC 985”605
Learning Objectives
- Describe changes to revenue recognition for software and technology companies
- Identify the basic principles of revenue recognition for software/technology
- Recognize practices involving revenue recognition and accounting for costs of computer software (ASC 985-605)
- Recognize how to account for non-software deliverables in an arrangement containing more-than-incidental software
- Identify applicability of ASC 985-605 when licensed software is hosted by the vendor
- Recognize how up-front fees impact revenue recognition
- Describe how future discounts impact revenue recognition
- Differentiate if software components are excluded from the scope of ASC 985-605
- Recognize how the current standard view assessment of whether a contract with a customer exists
- Identify and apply the three factors
- Describe software arrangements often included as an element referred to as post-contract support (PCS)
Level
Basic
Instructional Method
Self-Study
NASBA Field of Study
Accounting (2 hours)
Program Prerequisites
None
Advance Preparation
None
Instructor
Lynn Fountain
Lynn Fountain has over 38 years of experience spanning public accounting, corporate accounting and consulting. 20 years of her experience has been working in the areas of internal and external auditing and risk management. She is a subject matter expert in multiple fields including internal audit, ethics, fraud evaluations, Sarbanes-Oxley, enterprise risk management, governance, financial management and compliance. Lynn has held two Chief Audit Executive (CAE) positions for international companies. In one of her roles as CAE, she assisted in the investigation of a multi-million-dollar fraud scheme perpetrated by a vendor that spanned 7 years and implicated 20 employees. The fraud was formally investigation by the FBI and resulted in 5 indictments estimating a $13M fraud loss.
Ms. Fountain is currently engaged in her own consulting and training practice. She is a highly sought-after trainer and international speaker. In addition, Ms. Fountain has assisted numerous companies with enterprise risk management frameworks, internal audit processes and financial accounting. She also serves as a discussion leader for the AICPA for numerous classes finance, accounting and risk management topics.
Ms. Fountain is the author of three separate technical books. Her first book released in 2015 by the Institute of Internal Auditors Foundation is entitled “Raise the Red Flag – The Internal Auditors Guide to Fraud Evaluations”. Her second book “Leading the Internal Audit Function” was released in October 2015 by Taylor & Francis Publications. This book serves as the initial launch for a series of leading practice internal audit and information technology publications. Her third book “Ethics and the Internal Auditor’s Dilemma” was released in December 2016.
Ms. Fountain obtained her BSBA from Pittsburg State University and her MBA from Washburn University in Kansas. She has her CPA, CGMA, CRMA credentials.